Western Mainland Europe Construction Market Report 4Q 2023
Germany
Local economic indicators
The Federal Statistical Office of Germany (Destatis) reported that the country’s gross domestic product (GDP) in 3Q retracted by 0.3% year-over-year (YoY), price and calendar adjusted, and retracted 0.1% on the previous quarter. Data for gross value added by industry was also updated in November, showing that construction and real estate activities had both grown by 0.4% over the previous quarter, contributing positive quarterly growth after repeated retraction in 2022. Deutsche Bundesbank expects economic recovery in early 2024, reporting that the labour market is stable and negotiated wages rose in 3Q. The Organisation for Economic Co-operation and Development (OECD) updated its yearly GDP forecast to -0.1% in 2023 and 0.6% in 2024.
November data from Destatis shows inflation continuing to slow, reaching 3.2% — the lowest since August 2021. Energy pricing remains high but has retracted from the previous year. The Eurostat Harmonised Index of Consumer Prices (HICP) has had similar results, reporting 2.3% in November, the lowest since June 2021. The OECD forecasts 2023 inflation at 6.2% for the year’s average and 2.7% in 2024.
Construction materials
The local industrial producer price index, as reported by Eurostat, reveals ongoing price recovery in wood, flat glass, steel tubes and electrical distribution. Clay and concrete have experienced more significant inflation throughout 2023, likely due to energy price volatility. See the following table for month-over-month (MoM), YoY and indexed pricing inflation:
Market outlook
Construction confidence has steadily decreased throughout the year, reaching -23.8 in November due to low employment expectations (-15.8) and worsening current overall order books (-31.8). Respondents ranked insufficient demand (36.3 and labour shortages (29.7) as the highest factors limiting building activity.
High interest rates and inflated construction costs have caused a significant number of developers to file for insolvency, affecting several billion euros worth of work in addition to other projects that have been shelved for the time being. Residential construction has been greatly affected due to challenging interest rates. As anticipated, M&E contractors are extremely busy meeting the increased demand for net zero carbon transitions in new and existing buildings.
A recent court decision impacted the government, causing a €40 billion gap in the public budget in 2024. This deficit may lead to cutting in other areas, such as subsidies.
The country is generally nervous about how new energy policies will impact production and manufacturing. A new law, expected initially to require a complete transition from fuel-fired heating systems to full electric heat pump systems by the end of 2024, has been finalised, with the obligation period extended by several years.
As always, Gleeds advises regular project budget updates that take into account recent market pricing and local risk factors which may impact project programmes and costs. Undertaking risk analysis studies enables better evaluation and preparation of appropriate contingencies for your particular project conditions and risk exposure.
Taunus Tower, Frankfurt, Germany — Gleeds provided Quantity Surveying/Cost Management services.